Friday ended the week on a down note as the Dow Jones Industrial Average (DJI) fell 0.8%, which resulted in a 0.5% loss for the week and halted a four-week streak of winners.
Two major factors contributed to the decline:
1. Consumer confidence, as measured by the Reuters/University of Michigan Index, fell to 63.2 in August from 66.0 in July. Analysts had expected 68.5.
2. Dow component Boeing (BA) fell 4.2% after it disclosed that new flaws in production of its 787 Dreamliner led it to halt work at its fuselage assembly plant in Italy.
Consumer spending is becoming a major issue since it makes up two-thirds of the U.S. economy.
In addition to the consumer confidence report, a weaker-than-expected sales report from Wal-Mart (WMT) for back-to-school shopping shook the market.
And then JC Penney (JCP) reported that its second quarter will show a $1 million loss and said it expects a breakeven result in the current quarter.
At the end of the day, the Dow was off 77 points to 9,321, the S&P 500 (SPX) fell 9 points to 1,004, and the Nasdaq (NASD) was off 24 points at 1,986.
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The NYSE traded 1.1 billion shares with decliners ahead of advancers by almost 3-to-1. The Nasdaq traded 605 million shares with decliners ahead by almost 4-to-1.
For the week, the Dow fell 0.5%, the S&P 500 lost 0.6%, and the Nasdaq was down 0.7%.
Crude oil (September contract) fell $3.01 to $67.51 a barrel, and the Energy Select Sector SPDR (XLE) closed at $50.71, off 76 cents.
December gold lost $7.80 to settle at $948.70 an ounce, and the PHLX Gold/Silver Index (XAU) fell $3.10 to $145.89.
What the Markets Are Saying
The three major indices have run into resistance at their current levels, and even with the low summer volume appear to be losing momentum. And three of our most-watched internal indicators — Relative Strength Index (RSI), momentum and Moving Average Convergence/Divergence (MACD) — have issued short-term sell signals after the market ran into the stiff resistance outlined in Friday’s Daily Market Outlook.
If the first line of support at Dow 9,180 and S&P 985 fails to hold, look for both to continue to pull back to their primary support at Dow 8,760 to 8,878 and S&P 945 to 950.
For the Nasdaq, the first support is just above Friday’s close at 1,985, with primary support at 1,770 to 1,880.
As for a breakout, forget it for now.
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The markets have turned lower, and I’d watch Nasdaq since it led the markets up since March, and may lead them in correction.
This key index has a very defined top at 2,015. If that is breached, look for a very quick run to 2,100 to 2,200, and perhaps even to our longer-term minimum target of 2,300. But what is more likely now is a pullback to the major support (1,770 to 1,880).
It’s once again time to raise some cash, but be prepared on short notice to put it back to work again.
We’re in a bull market, but this is still a young bull and it may stumble a bit before getting his balance and heading for higher pastures.
Today’s Trading Landscape
Earnings to be reported include: Agilent Technologies (A), AirMedia Group (AMCN), CDC Corp. (CHINA), Cellcom Israel Ltd. (CEL), China Distance Education Holdings (DL), Golden Ocean Group Ltd. (GDOCF), Harmony Gold Mining Co. Ltd. (HMY), Lowe’s (LOW), Simcere Pharmaceutical Group (SCR), TechTarget (TTGT) and Valspar Corp (VAL).
Economic reports due: NY Fed’s Empire State Manufacturing Survey (the consensus expects 5), Treasury International Capital Flows and NAHB Housing Market Index.
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